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AIG Looking to Settle Long-Running Workers Comp Case with Insurers

Source: WSJ

Posted on 07 Jan 2011

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In an attempt to resolve a long-running case over alleged under-reporting of premiums on workers compensation policies, American International Group Inc. (AIG) has agreed in principle to pay $450 million to settle litigation with rival insurance companies, the Wall Street Journal is reporting.

According to court documents, the proposed settlement relates to a civil lawsuit filed against AIG in mid-2009 by two firms, Safeco Insurance Co. of America and Ohio Casualty Insurance Co. on behalf of a group of insurance companies. The two companies, whose ultimate parent is Liberty Mutual Insurance Co., had sought class-action status for the case and oppose the settlement.

The settlement was instead reached between AIG and seven other insurers that were among those affected by AIG's conduct in the 1980s and 1990s.

On Wednesday they asked a Chicago federal court to allow them to "intervene" and settle the lawsuit, which alleged a $1 billion workers compensation under-reporting scheme at AIG.

In court filings, the insurers indicated the Liberty units had "very different business judgments about the wisdom of continued litigation as opposed to settlement." The group includes Hartford Financial Services Group Inc. and a unit of Travelers Cos.

Gary Elden, an attorney for Safeco Insurance and Ohio Casualty, called the proposed "settlement" between the seven insurers and AIG "an act of self-interest [that] is detrimental" to the class of 600 members that his clients want to represent. "It fails to consider previously undisclosed documented evidence of under-reporting," he said, adding that his clients "remain in the best position to adequately represent the class and prosecute the claims against AIG."

Spokesmen for Hartford and Travelers had no comment.

The proposed settlement would require AIG to pay the $450 million to a fund that would make payouts to insurers that were affected by its under-reporting of workers compensation premiums, ending the civil litigation.

"We're pleased with this development," an AIG spokesman said. "It is unfortunate that Liberty is refusing to participate in this fair and reasonable settlement. As the seven other settling insurers have recognized in seeking to intervene in the action, Liberty's preference to continue litigating is not in the best interests of the class members," he added.

A settlement of the civil lawsuit would help close the book on a separate agreement AIG recently reached with state insurance regulators across the country that had probed the insurer's reporting of workers' compensation premiums from 1975 to about 1996.

To resolve that multistate probe, AIG last month agreed to pay a $100 million fine and $46.5 million in taxes and assessments. The state settlement won't be final until AIG resolves litigation with its rivals and gets formal approval from a number of states that would receive a portion of the $100 million fine.

The state investigation, led by Pennsylvania regulators, found that AIG misreported more than $42 billion in workers compensation premiums. The size of an insurer's business, calculated from its premiums, determines each firm's share of contributions to state-mandated pools that cover injured workers who can't get coverage from the private sector.

The amounts AIG has agreed to pay to the states and its rivals will partially come from a $300 million fund the insurer set up in 2006 as part of a settlement agreement with New York regulators over the workers compensation reporting issue. That money was earmarked to be distributed among various states or players that were hurt by AIG's alleged conduct.